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RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: And a very good evening to you. Welcome, this is QUEST MEANS BUSINESS. I'm Richard Quest. Tonight coming live from Wall Street, where President Barack Obama has sent out first and very strong message but the markets are giving their own reaction. The Dow Jones currently off more than 400 points.

I'm Richard Quest, tonight "meaning business" from the world financial capital, New York City. Where the markets have been on a roller coaster over the past few hours. They have been beset, and betwixt and between, from a European debt crisis, and a U.S. debt downgrade. This is what Barack Obama said a short time ago.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: So all of this is a legitimate source of concern. But here is the good news, our problems are eminently solvable. And we know what we have to do to solve them. With respect to debt our problems is not confidence in our credit. The markets continue to reaffirm our credit as among the world's safest. Our challenge is the need to tackle our deficits over the long term.

(END VIDEO CLIP)

QUEST: Barack Obama speaking just moments ago. Now let's catch up the markets and how they have been responding to that. We are in the midst of a massive sell off. Not quiet rivaling Thursday's, but not far off at the moment. Traders are cashing in and looking for a safe haven. Take a look at the Dow Jones industrials at the moment. The Dow is off more than 400 points at the moment. Shares in Bank of America at the bottom of the table, BOA is down by more than 16 and traded more than 200,000 times since the opening bell; 7 billion shares have changed hands on Wall Street by noon.

America's credit rating, of course, is tarnished and these are the European markets and how they have been trading to their punishing day in London. With the FTSE as a 13-month low. The DAX in Frankfurt took a sickening 5 percent lurch. It is at its lowest point in nearly a year. The benchmark indices in Paris and Zurich are back to levels not seen since mid-2009. Almost every share on those indices made a loss today. Randgold Resources is one of the very few in London that gained ground. It added more than 7 percent. Why did Randgold rise so sharply? You know the answer to that, gold went up several percent more than $50 an ounce. Gold is now trading at more than $1,700 an ounce. Into this maelstrom of market misery Mort Zuckerman joins me now.

Good afternoon, come and join me over here.

The chief executive of the Real Estate investment company Boston Properties, (UNINTELLIGIBLE) of course for the editor-in-chief for the weekly magazine, U.S. News & World Report". How serious, serious is the crisis that we are facing as of 2:00 o'clock on Monday afternoon.

MORT ZUCKERMAN, CEO, BOSTON PROPERTIES: Well, I think it is very serious, certainly for the United States. We have an unemployment rate that is just soared, it is now in real terms somewhere around 18, 19 percent, forget the headline number. We have an economy that is going down. We are not into a very, very delicate phase of the economy because we will not have any fiscal policy or monetary policy that can have an impact, and yet everything is still heading down.

QUEST: Yes, but would you agree that the actual downgrade, as such, was not a major crisis.

ZUCKERMAN: Well, it reminded everybody of just how desperate our fiscal situation is. It is absolutely valid to point at it and say we are in deep financial trouble. It is not just what has happened in the past but with the next half dozen years we have a $7, $8 trillion deficit that we have to something about. And we have a political system that is paralyzed.

QUEST: So what do you want to do? What do you want, either the president or Congress to do. Because seemingly, every time they speak, the situation gets a little bit worse.

ZUCKERMAN: Yes, because they haven't done anything. All they have done is speak. You can't solve this problem with speeches. You have to get both parties together to take some very unpopular and difficult steps. But without that we could have a major downturn in the economy. Something that we have not seen since the Great Depression.

QUEST: Alan Greenspan said today, sorry, Alan Greenspan said yesterday. He doesn't seen signs of a double dip recession.

ZUCKERMAN: Well, I hope he's right. All I can say, we are in an unprecedented situation and therefore it is unpredictable. I happen to think we can have-if not a double dip recession, certainly a very, very slow economy that will compound all the problems we are looking at now in terms of unemployment and in terms of the financial crisis.

QUEST: So, the right in all of this says no tax rises. The left says you can't have these swinging (ph) cuts made in entitlements. Are you in favor of some tax rises?

ZUCKERMAN: I have always been in favor of tax rises, if only for a political matter. The well-to-do have got to show that they are paying a part of the price. That everybody is going to have to pay. But I'm also in favor of redoing out entitlement programs because it is going to break the economy, we have a huge population of baby boomers who are about to retire.

QUEST: Which is more important to you at the moment the debt crisis in America-and when I say you, I don't mean you personally.

ZUCKERMAN: I understand.

QUEST: I mean, which is more important the debt crisis in America or the European debt crisis with Spain and Italy?

ZUCKERMAN: Well, in this country it is the debt crisis in America. The European Central Bank is going to step in and do what it has to do. We have a very different situation in which you don't know which of our government institutions, whether it would be the executive branch or the Congress, that is going to do what it has to do. At this point they haven't done what they have to do.

QUEST: Finally, as you stand tonight, and I'm just looking down at the market. We are down 425 points or so, more than 3 percent. Where does it go from here?

ZUCKERMAN: You don't think I'm going to predict where the stock market goes? Do you, I'm not that stupid. But I will tell you, what I do see is an economy we're going to have unemployment is going to go up, the stock market, I believe is going to go down. Our political system is going to be-it will loose credibility. Unless they actually join together and do something, because only if both parties share the blame then will they be able to do what we have to do.

QUEST: Good to see you. I was trusting my luck there. I thought you might. I thought you might have a go at it. Many thanks. Mort Zuckerman joining me here talking about that.

We need some strong economists. We need some strong economics in all of this. Stephen King is the chief economist at HSBC. In this latest report on the Eurozone, he says it is difficult to argue that Italy has done anything wrong. It is almost done everything that it should have done and it is still under attack. Stephen King joins me now CNN in London.

Stephen, if it has done everything right. Then why is it under attack?

STEPHEN KING, GROUP CHIEF ECONOMIST, HSBC: There is a very simple explanation for that which is that the markets became increasingly nervous about the future of the euro itself. If the euro is going to break up, you are going to end up with a situation where people will buy lots and lots of German bunde and sell lots and lots of Italian bonds. The consequence was that as people became more and more nervous about the outlook for the euro itself, and began to speculate on Italy.

My point is that the fiscal position of Italy, in many ways, is actually pretty good, whereas the U.S. has a massive great big budget deficit, the Italian deficit really isn't that big these days. It finds a primary surplus, it basically means that excluding debt interest payments it is actually saving money rather than spending money. So in all these kinds of measures, Italy doesn't look that bad.

QUEST: All right. So-OK, so, if we take today, what is the fundamental reason, let's get right down to it, Stephen, why the market should be so unhappy today, at this minute, off 3 percent, in New York?

KING: I think the simple answer is that we have had the kind of almost a certification that the U.S. has a major long-term fiscal problem. Up until now it was convenient to argue that actually the problem was much more in Italy or in Spain, or in Greece. But when you look at the overall figures for the U.S., for its deficits and for its debts, it is quite a lot worse than the Eurozone collectively. People look at their individual countries within the Eurozone, and don't look at the whole picture, the whole picture in the Eurozone is quite a lot better than it is in the U.S.

And the fact of the matter is, as your previous commentator was saying, when you look at the U.S. today we have a situation where the Democrats and the Republicans cannot agree on the kind of policies that are required. And that gives the appearance, at least, of treating the creditors elsewhere in the world with some degree of disdain.

QUEST: All right. But I keep coming back to this constant theme. Because we have now been at this since the crisis began in 2008. Stephen, what is it going to take for policymakers to get ahead of the curve? I mean, we have seen it with the ECB on Italy and Spain, but frankly you don't believe that that is actually what the ECB's bond buying is going to be anymore than a band aid on a problem, do you?

KING: Absolutely right. As far as the Europeans are concerned you have to have eventually a move towards a much more common fiscal policy, some kind of fiscal union over the course of the next few years. And preferably a timetable towards establishing that in the years ahead. And as far as the Americans are concerned I think there has to be a recognition the trend rate of growth in the U.S. is a lot lower than was previously assumed. You can't keep hoping that a magic wand will be waived and somehow the economy will recovery strongly over the next few years. It hasn't happened yet it is not going to happen in the future. And it means that America has to learn to have to live within its means.

QUEST: Stephen, I'm going to ask you the same question that I asked Mort Zuckerman. Because it seems to me-and you and I have talked many times over the last three years on this crisis-but it does seem to me that we are starting to resemble what happened in 1927. You had the stock market crash, and three years later you had the second leg down. Do you see any similarities between the recession of three years ago and that seriousness of the structural issues that are happening now?

KING: Yes, there is clearly a connection, which is that back in, two or three years ago, there was the assumption that somehow you could stimulate activity, and you get a very, very strong recovery. That assumption proved to be incorrect. What we avoided two or three years ago was a great depression, which was good news but we haven't really resolved the structural problems that exist within Western economies.

I would argue actually the closer analogy probably was with Japan over the last 20 years. Japan went badly wrong. We conveniently in the West assumed that we knew how to fix Japan's problems. But we are now beginning to learn that we have problems very similar to those of Japan. Very large amounts of debt, the need for tremendous amounts of deleveraging. And while you are doing that a much weaker growth rate than we had seen in the past.

QUEST: Stephen King, always good to have you we'll talk more again no doubt in the days ahead. Stephen King of HSBC joining me from CNN London.

We need to update you with the markets. This is how the Dow Jones is trading at the moment. The Dow is currently down more than 460 points at the moment. We have markets down across the board. In Europe the DAX was off more than 5 percent.

When we come back, in just a moment, a tale of two continents. After the break, can anything stop the slide in markets? And more importantly, can the ECB be the motion and the mover and shaker that will put things right. In a moment, QUEST MEANS BUSINESS, we're live in New York.

(COMMERCIAL BREAK)

QUEST: Welcome back. It is QUEST MEANS BUSINESS. We are live tonight from New York where on Wall Street just by the New York Stock Exchange where the Dow Jones industrials taking an absolute pummeling. I'll just tell you where we stand at the moment. The Dow is off more than 400 points, 450 plus points, at the moment. The Nasdaq composite is down 5 percent, factoring all this in it is one of the grimmest days for stocks, because we are obviously following from what happened with the U.S. downgrade.

Now, in-I beg your pardon, I just need to tell you that the Dow, I'm being told is now down more than 500 points, in real time.

Italy and Spain are two of the countries in Europe that have been clobbered by the markets, by the bond vigilantes, in recent days. Help has come from the European Central Bank, which announced that it was going to start buying its Italian bonds. Leone Lakhani now reports on what that means in practice, and whether frankly, the ECB has the firepower to save Italy.

(BEGIN VIDEOTAPE)

LEONE LAKHANI, CNN FINANCIAL CORRESPONDENT: The European Central Bank bond buy back program was aimed at restoring confidence in the Eurozone, and bringing down the borrowing costs for Italy and Spain. In other words their bond yields. Now did it work? It did, to a certain degree. The yields for both Spain and Italy have come back down to just over 5 percent. They are still much higher than the best performing economy in the Eurozone, Germany. Its bonds stand at about 2.25 percent. But just last week Italy and Spain's yields had gone dangerously high, near 7 percent, a level that is seen as unserviceable.

Now even if the yields comes down and stays down, there is still a crisis in confidence in the markets now. You can see that from the numbers because all of Europe's main indices have fallen nearly 10 percent since Thursday. The reason for all of that is because the overall debt crisis is still hanging over the Eurozone like a dark cloud. And what investors want to see is clear direction from the ECB and Europe's leaders and united effort across the entire bloc to resolve this crisis.

Now the Eurozone has a fund called the European Financial Stability Facility, or EFSF, which has the power to keep those countries that are in crisis dry, by pumping in cash as needed. The bottom line is the fund is just not big enough. The EFSF has about 630, billion dollars. And much of that has already been earmarked for bailing out Greece, Portugal and Ireland. And any large-scale intervention in the bond market will suck up even more of that cash. So the ECB's action may be a short-term fix, but perhaps not enough to keep the Eurozone dry from the impacting debt cloud.

(END VIDEOTAPE)

QUEST: Leone Lakhani reporting there on the markets.

Now, we have live pictures coming to you, which we need to show you, now. It is of rioting in eastern parts of London. You will, of course, be aware that a couple of days ago, yesterday, there were some very serious rioting, Saturday night into Sunday, in London. In the Totnam (ph) District, now in the Hatfield District there has been other rioting, buildings on fire, and as you can see, rioters on the street at the moment. We'll have more details on exactly what caused this later spout of rioting, and these latest schrubbles in London, in just a moment.

QUEST MEANS BUSINESS coming to you live from New York this evening. The financial world is in turmoil. There is rioting in parts of London. And as you can tell, it is turning into a very busy start of the week. I'm Richard Quest, good evening to you.

(COMMERCIAL BREAK)

QUEST: Italian stocks rally sharply this morning after Sunday's intervention from the European Central Bank, it wasn't long though, there was a fall by the close of business. Even though, yields did fall on Italian 10-year bonds. Diana Magnay is in Rome for us tonight. Diana joins me now.

So, they tried but they failed to rally the markets, at least in terms of equities, Diana?

DIANA MAGNAY, CNN FINANCIAL CORRESPONDENT: Yes, but I think the reason the Milan bourse fell, Richard, was because it was mirroring what happened on the Dow. There was a rally as a result of the ECB intervention and the buying up of Italian bonds, which also reduced the yield on the bond, which is what saved Italy, at least in the very short term. Italy's problem is, as we were hearing from Stephen King, not in a similar caliber to Greece, or Portugal, or Ireland, at the moment. But if borrowing costs continue to spiral, then it will not be able to service its very high public debt. It has a 120 percent public debt to GDP, but it is budget deficit is pretty low comparatively.

So as long as the markets can be reassured, investors can be reassured, and therefore not push up the yield on the bonds, Italy should stay safe. But the trouble is, Richard, right now, investors don't really know what the austerity program that Silvio Berlusconi has promised to rush through, and fulfill by 2013 instead of 2014, what exactly the measures in that austerity program are. We expect to find that out later in the week, from the finance minister, in fact, on Thursday, Richard.

QUEST: Diana Magnay, who is in Rome for CNN tonight, with the market side of the story.

Some of the Italian top business leaders said they will do what is necessary, even if that means buying Italian government bonds. They will buy the bonds themselves. One of the chief executives is Paolo Scaroni, the chief executive the oil firm, E-N-I, Eni. And Paolo Scaroni is on the line now.

Mr. Scaroni, how much are you prepared to pay? How much money are you going to put on the table, to buy those bonds?

PAOLO SCARONI, CEO, ENI: Well, you are talking about my money, I think, when I am already quite invested in Italian bonds, because I am confident that Italian bonds are very sure.

QUEST: What do you believe is needed in the Italian economy to get things put right? Because we have already had one austerity measure, and now it looks as if there will have to be another measure.

SCARONI: Well, you will see that the Italian government will not (INAUDIBLE) will quickly bring back (INAUDIBLE) the small (INAUDIBLE) will never forget that he is one of the (INAUDIBLE) biggest (INAUDIBLE) in the world. (INAUDIBLE) And if we find (INAUDIBLE) to carry on (INAUDIBLE) then they will go back and take its role in the world economy. That is the reason why I am confident (INAUDIBLE)

QUEST: Right.

SCARONI: (INAUDIBLE).

QUEST: OK, So what do you hope is going to happen by the buying of these bonds? Because on one level, I mean, you can't-no matter how many chief execs you've got and how much money you spend, you can't prop up the Italian bond market. So how much of this is just a gesture to show support? And how much is designed to have real effect?

SCARONI: Well, many of us have been buying bonds, and many more of us have been buying stocks, as well. Just on my company, several executives have been buying (INAUDIBLE) any stock, but newer (ph) companies as well. And this will set an example for others to show that (INAUDIBLE).

QUEST: Paolo Scaroni, joining me on the line there. We thank you for that.

In all of this misery that there seems to be on the market, if there is one barometer that has risen sharply, you don't need me to tell you, but I will anyway. It is, of course, gold. When there is uncertainty in the market, gold rises. And it is now at a record high. And we'll discuss that when QUEST MEANS BUSINESS comes back. Q M B, live in New York, good evening.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN.

And tonight, the main headline is that the U.S. markets are down very sharply. Look at Dow Jones Industrials, which is currently off well over 450, 500 points at the moment.

The NASDAQ is now down, looking at my numbers, down more than 6 percent at the moment.

The Russell 2000, which is a very large barometer -- it's got 1,001 stocks in it -- 2,000 stocks in it, actually, that is off more than 7 percent.

So that is the financial world as we look at it at the moment.

Let's catch you up with the other new headlines.

Hala Gorani is at the CNN News Desk -- good evening, Hala.

HALA GORANI, CNN CORRESPONDENT: Hello, Richard.

Well, here are the other headlines we're following.

Syria's military is reportedly withdrawing from Hama eight days after tanks and troops first began storming the city. That is according to state television, though witnesses on the ground tell us a different story. According to state television in Syria, security forces have accompanied, quote, "the mission of protecting citizens. The pullout comes as Bahrain, Saudi Arabia and Kuwait recall their ambassadors to Syria.

These are live pictures from Peckham in South London. Shops have been set on fire. And you can see there thick black smoke curling up from what looks like a pile of wood and other things burning. This looks like -- in fact, I'm being now told that this is a shop on fire in Peckham and police are choosing rioters down the street. British officials say people responsible for the violence and looting in London will be held accountable for their actions.

And there you have a much better, wide, aerial shot of what is a shop on fire in South London. Rioting spread to Hackney in East London Monday, following two nights of unrest across the British capital. It was initially sparked by the shooting death of a 29-year-old man.

And double amputee Oscar Pistorius will be part of the team South Africa is sending to this month's World Athletic Championships. The so- called "Blade Runner" uses carbon fiber attachments in competition. He had been ruled ineligible in the past with the sport's governing body saying that those attachments gave him an advantage over able-bodied athletes. The decision was later overturned and so there you have it -- he is taking part -- Richard, that's a look at the headlines.

But you on Wall Street.

QUEST: I thank you, Hala Gorani.

We'll be back with you at the top of the hour for more headlines.

And I can tell you now that not only is sweltering economically, it's sweltering physically.

Maggie Lake is with me.

But we -- actually, we -- we're laughing, but there really isn't a huge amount to laugh about at the moment.

MAGGIE LAKE, CNN CORRESPONDENT: No.

QUEST: Come in and join me over here, Maggie.

What's going on?

The Dow up 530 odd points, the NASDAQ down 151 points. This is a rout.

LAKE: It is, but it's emotional. Very important to remember, who have not had a 5 percent economic change in fundamentals overnight, Richard, or a 10 percent change or downdraft in the economy since last week. These are emotional markets. It's fear trading. They're technologically driven. Electronic things move quickly. They trigger more orders.

So this is very much emotional. I made a call earlier to ask about the downgrade, not only to the U.S., but to Fannie and Freddie.

Is this going to have a real impact on the economy?

Is it going to hurt housing...

QUEST: Look, all right...

LAKE: -- etc....

QUEST: All right.

LAKE: And the answer was no...

QUEST: You're -- you're...

LAKE: -- it's not.

QUEST: It's not at the moment. It's not at the moment, Maggie. But if you have day after day after day of (INAUDIBLE)...

LAKE: Yes.

QUEST: Then you end up with a dislocation that does lead to the double-dip.

LAKE: That's right. And that's the unquantifiable right now -- confidence.

What does this do to confidence?

You heard President Obama come out and try to reassert, no matter what the ratings agencies say, the U.S. is a AAA economy. We can get through this problem. That's what it's going to be about. Consumers are hard hit, who can open up their retirement, especially the baby boomers, who see the losses...

QUEST: But it's frightening...

LAKE: -- businesses...

QUEST: -- though, it's frightening to see the market

(INAUDIBLE). We're at 500 on Thursday, 500 on Monday.

LAKE: And as you know, these things can also turn quickly, too. It's important to keep calm heads in this. You're right, these are devastating losses, but can also turn around. Right now, it's fear. It's not economic fundamentals. We shall see if it starts to feed into the real economy. If we see these kind of losses continue, it will. But that doesn't mean it's going to...

QUEST: OK. Finally, though, is there a feeling, do you think, that - - well, we've got a Fed meeting, haven't we...

LAKE: Yes.

QUEST: -- coming up?

A Fed meeting tomorrow.

Will they respond in any way to this all?

And, obviously, they're not going to do anything on interest rates.

But will a statement say anything, do you think?

LAKE: Probably not, except vague reassurance that they are watching and closely monitoring the situation. Again, I talked to somebody earlier -- should they be doing something?

They said, A, no, you don't want to panic things further.

There isn't any -- really anything they should do right now, until you get a gauge of where the economy is going. And they don't have that much maneuver room. Remember, a lot has happened. They don't have that much ammunition in the box.

QUEST: Right.

LAKE: Fed people would tell you differently, but that's probably the truth. You know, they said just sit back, watch what happens, give it time. And the Fed will probably do that. They're not traders, the Fed.

QUEST: All right.

LAKE: They're going to wait a little bit.

QUEST: Maggie Lake, many thanks.

It is boiling here, absolutely boiling. Any breeze that there may have been on Wall Street -- in fact, it's so boiling, you almost do have to just dab yourself off every now and again. A bit like the markets themselves.

There's one market that is absolutely blisteringly hot, and I don't mean physically. I mean the prices are rising. It is, of course, the price of gold.

Felicia Taylor is at the NYMEX -- Felicia, what -- first of all, but first you tell me why, tell me what -- what happened today?

FELICIA TAYLOR, CNN CORRESPONDENT: Gold is now at $1,722. It was just a couple of months ago that we were looking at a price of about $1,600. It's an incredible (AUDIO GAP) of about $68. This necklace just became a lot more expensive. The price of gold is at an all time record high.

I'm joining by Anthony Neglia of Tower trading, who can give a little bit more perspective on what this all means.

Do you actually think that this market has legs and could go higher?

ANTHONY NEGLIA, PRESIDENT, TOWER TRADING: Yes, actually, I do think it has legs. There's a lot of trouble in Europe, which a lot of people are focusing on. And I think the central bank buying that we saw in June and July is adding to this fire. And these are strong longs. These are not longs that are going to get panicked out by $100 or a $200 sell-off.

So, yes, $1,800 and beyond is not outside the realms of possibilities. We're up, from July 1st, we made a low, July 1st, of $1,480. So we're up over $200 in just about a month's time.

So if we keep on this pace, or even half of this pace, we're $2,000 bound and above.

TAYLOR: You mentioned central bank buying. I mean that's significant buying coming into the markets in the last couple of months. But you've actually also got contracts moving into February, priced at $2,100.

NEGLIA: Yes, we have a -- a lot of fund buying, Fed 21 calls, like you just mentioned, October 1800 calls, which is a near-term. And we have open interest out as far as Deceb 12 (ph) and a $2,025 call spread call spread call spread of 25,000 contacts. And that's a significant indication that people that are buying these options are in this for the long haul.

TAYLOR: Are people actually buying physical gold or is it just these contracts that you're seeing the most activity in?

NEGLIA: Well, right now, from my -- from my perspective, obviously, we're just seeing the physical -- we're just seeing the paper contacts. But, yes, there is interest in this physical buying. And it would be interesting to see if a lot of people went for the doors, how much gold there was actually available to them if millions of ounces had to -- had to hit all at once.

TAYLOR: So gold is considered a flight to security, a flight to safe haven.

As we look at gold as being, once again, the world's currency?

NEGLIA: Well, from a central bank standpoint, I believe that is true. From an investor's standpoint, I believe it also wears that, you know, commodity hat, where if you want to own something, whether it be an ETF or whether it be an equity stock in a gold stock or an option, that I particularly trade, that, you know, will wear the -- the commodity end of, you know, the gold description.

TAYLOR: Thanks, Anthony, very much.

So what you're talking about is possibly seeing a price of $2,100 on gold in the near future, which is incredible, as people search for somewhere to put their money.

The question is, is this a reflection of what's happening in the United States and can that safe haven still be considered?

The Treasury market hasn't moved nearly as much as equity.

So are people moving out of paper and into the safe haven of gold?

That seems like that's definitely what the story is today -- Richard.

QUEST: Which is just as well we sent you to the NYMEX, where they have no real gold to play with, because if we sent you to a jewelers, who knows what you would have come back with on my credit card bill.

TAYLOR: My pockets would have been full.

QUEST: Felicia Taylor joining me from the -- yes, I'll bet. Of that, I have no doubt -- stuffed to the gills.

Felicia Taylor with gold.

The woman loves gold.

When we come back in just a moment, you've heard us talk ad nauseam about S&P, Moody's and Fitch. We know they are the ratings agencies, but what gives them the right to rate anybody, even themselves?

QUEST MEANS BUSINESS.

We're live in New York after the break.

(COMMERCIAL BREAK)

QUEST: Welcome back.

QUEST MEANS BUSINESS live from New York.

It is a blisteringly hot day in New York. The New York Stock Exchange behind me.

Alison Kosik on the inside of the Exchange -- Alison, you may be in the air conditioning, but with the Dow down nearly 500 points that I'm seeing, I suspect it's just as hot.

What is happening on the market?

ALISON KOSIK, CNN BUSINESS CORRESPONDENT: Well, you know what, it's come back a bit, Richard. You know, we saw the Dow down as much as 605 points. It's recovered a bit now, down 497 points. You know, we've got to take some relief in that. We're watching a big spike, 38 percent. It's now sitting above 44.

You know, this is all about concern about the long-term impact of this downgrade. The problem is, you know, investors, they really don't know what the long-term impact is and that uncertainty is what you're seeing play out into the markets.

If you want to look at numbers, right now, here at the New York Stock Exchange, we've got over 3,000 stocks trading to the down side. A mere 55, Richard, are in positive territory -- Richard.

QUEST: OK. But, Alison, as these markets gyrate, is there any feeling -- when we were down at the high -- at the low point of the session so far, is there any feeling that they have reached that low point, that they are bouncing along a bottom, the people you're talking about there, or is there a nervousness that I could take another dip?

KOSIK: You know what, I think there was nervousness that -- that it can take another dip. I think the -- the P word, panic -- that panic selling, you sort of felt that for a moment when we saw the Dow fall so fast so much. No one really knows were the bottom is. And I think that's why you're seeing so many investors run for the exits at this point. You know, you're seeing them flee to -- flee to gold, as you saw from Felicia, and go to bonds, the very thing that S&P downgraded -- Richard.

QUEST: Alison Kosik at the -- inside the New York Stock Exchange.

She is just a few feet away -- well, maybe seven feet away, but obviously looking at the market from that point of view.

Alison, many thanks, indeed.

One of the reasons, of course, for all this turmoil was the decision by S&P to downgrade the United States by one notch.

Who gave S&P the right to make such a decision?

And, crucially, why is anyone taking any notice?

After all, these were the very agencies that missed the subprime and the mortgage-backed securities crisis three years ago.

Christine Romans now looks at the big three ratings agencies.

(BEGIN VIDEO TAPE)

CHRISTINE ROMANS, CNN CORRESPONDENT: S&P, Moody's and Fitch -- each analyze how much risk is involved in a country's debt and they assign a grade to show a country's ability to pay back loans. The safest bets are stamped AAA. That's the rating the United States held since 1917, until Friday.

Those ratings are based on the opinions and analysis of the agencies. Right now, S&P is simply pessimistic on our government's ability to handle its debt load.

S&P looks at these five factors when it's evaluating a sovereign debt. They are each rated on a scale of one to six, to create a political and economic profile and also a flexibility and performance profile. And the agency said that political risks and a rising debt burden were the two driving forces in its downgrade of America's credit rating.

So now that the U.S. has been downgraded for the first time in history, how does it stack up with other countries?

Take a look at this. These are 16 countries. And a few others are on here, as well, left in S&P's AAA club. You'll also notice that China, the world's second largest economy and also the biggest foreign holder of America's debt, China is not on this list. S&P assigned China a rating two notches below the U.S. China is AA-.

So why do these ratings even matter?

Why do these credit agencies do this?

And who listens to them?

Well, they're closely watched by investors and leaders around the world for their judgments on debt investments.

For governments, the rating agencies have a lot of power over the interest rates on the bonds that they can sell to investors. The safest bet pays the lowest interest.

And who pays the agencies?

A lot of you are asking that. The agencies are either paid by the borrower that requests the ratings or from subscribers who receive the published ratings and related credit reports.

Now, S&P tells us that the sovereign U.S. rating is unsolicited and that the U.S. government does not pay for that rating.

Christine Romans, CNN, New York.

(END VIDEO TAPE)

QUEST: And when we come back after the break, it may be sweltering in New York.

What is it where you are?

We'll have a weather -- a full weather forecast.

And Maggie Lake will be back to duel with me on the question of, frankly, what's going on.

QUEST MEANS BUSINESS.

We are where we need to be, which is in New York City.

(COMMERCIAL BREAK)

QUEST: Stocks may be going down, social media and Tweetography is going up -- and I mean well and truly.

Here are Tweets from the Top -- the people who are Tweeting about the financial crisis, influential people.

Jack Welch, the former chief executive of GE, is Tweeting: "Having dealt with rating agencies for years, I am certain that administration trashing them for downgrading them is a losing tactic."

If you know somebody we should be following or if you think you are a top Tweeter, the Tweet address, as always, is @richardquest.

The weather forecast now.

Guillermo is at the World Weather Center -- Guillermo, whatever else there might be happening in the financial world, do you -- can you tell me what -- what on earth is the temperature that I'm sweltering in here in New York?

GUILLERMO ARDUINO, CNN METEOROLOGIST: I was checking it out. It's 32 degrees only. And I don't see any warnings at all. I think it's more -- I had a glass of wine, in fact, Richard. And anything -- no, honestly, the - - we are going to see some seems later. But there's a slim chance. You see, we don't have any heat advisory for the New York. Area. It's only in the South and into the Southwest. And apart from that, New York appears to be fine, hot, 32 degrees, the dead of summer. And in a big city, I think that's what it is.

Now, if you go a little bit north into Boston, it's much better.

We are not likely to see significant delays. Actually, Chicago with some storms. New York with a chance of storms, but not big storms expected for tonight.

Where we see a big change is in Europe, especially in the north. And stormy weather is moving through Scandinavia and into parts of Russia right now. And along with that low pressure center and the scattered showers all the way into Denmark and Poland and also Latvia and Lithuania, we see how it's turning cooler on the other side of Europe, all the way into France, the Alpine region. You know it doesn't look that bad, but when we look at the satellite picture, obviously, the low pressure system to the north is governing the conditions.

While the Mediterranean can't look any better, because we have sunshine all over, all across the area. And into Spain, the conditions continue to be extremely warm, so be careful.

We are expecting some more rain in the Midlands and in the southern parts of Scotland, where that new system is going through. There may be some windy conditions in Amsterdam.

But we don't think that actually you're going to see a significant impact at airports. Copenhagen, maybe, with those windy conditions, all associated with the same thing. Berlin, the same thing. You see, I was talking about the Baltics and Poland, but parts of Germany still affected by this. And also, another area of cooler conditions. But Madrid remains at 35; Athens, 34 for tomorrow; Kiev at 26. And that is gradually changing.

Let me tell you that the system that we saw that was threatening to go into Shanghai only brought intense winds into Shanghai, but it made landfall into North Korea. And you're going to see how wide the system is. We've been talking a big system that actually was one of the strongest in the last years.

This is the landfall location, in the northern parts of North Korea, a remote place of the peninsula. It brought a lot of rain into South Korea, in Chinju, with 220 millimeters; also Muan, with 80 kilometers per hour. And rainfall in China, far away from the area where it made landfall, but it brought 100 millimeter millimeters.

We will see, Richard, more rain north of Shanghai right now and into the Korean Peninsula as well -- but you.

QUEST: Guillermo is at the World Weather Center with an outlook on what's happening.

Now, the Dow Jones -- we need to update you. Have a look at these numbers. Now down, the Dow is off more than 500 points -- 507 points. The NASDAQ Composite isdn also more -- nearly 6 percent, off 140 odd points.

All of which tell a pretty sorry state of affairs for the U.S. market.

Maggie Lake is back with me.

We keep -- we keep saying and you -- you rightly remind us, Maggie, that this is sentiment and psychology, it's not economic fundamentals.

LAKE: That's right. And that's not to say it's not serious. We've just lost trillions in market cap in a very short period of time. I talked to a retail broker last night. He said, you can say all those things in statistics, but when you're on the phone with people who are watching their retirement dwindle again -- and remember, we've got a populace traumatized by what happened in '08. This is serious.

But you know, Richard, back in '08, when we watched the market, you didn't know where it would stop. People were talking about taking money out of banks and putting it under their matters.

Now what I'm hearing is buyers are being stingy. They don't want to get in the way of a short-term mood, but they're looking for opportunities...

QUEST: All right...

LAKE: -- that is something that we did not hear back in '08.

QUEST: All right. So you and I -- and -- and neither of us are huge lovers of the -- the personal financial breach, if you like.

(LAUGHTER)

QUEST: I think that's fair enough. But...

LAKE: I don't have any money, how could I be, right?

QUEST: But if you missed getting out of this market?

LAKE: Experts will tell you don't do it now, because you have to be right twice. You have to get out and then you have to know when to get back in. People who pulled out late in '08 and did not get back in missed a chance to recover again. Those are some of the same people that are getting nervous now.

It's painful. It's difficult if you are up in years. But it's very difficult to move on these short-term moves. All the experts will tell you, sit tight until we get some clarity.

QUEST: OK. And I just want to talk about these markets again...

LAKE: Yes.

QUEST: -- because down 500 points, the president has spoken.

LAKE: Right.

QUEST: And the markets have basically...

LAKE: Because they know he can't do anything about it. I mean he tries to calm -- he was speaking to the American people, who are freaking out at home when they look at the headlines tonight. But there isn't anything anyone can do to step in toward -- in front of a short-term tidal wave like this, right?

You get out of the way of the market trend.

QUEST: Are we in panic?

Is the market in panic today?

LAKE: Had to say right now. When you start to see...

QUEST: It's a very thin line, isn't it?

LAKE: -- these numbers -- right it is.

QUEST: It's a very thin line.

LAKE: It is. But I would say, it doesn't -- again, it doesn't feel like the panic about the overall system in '08. It's panic about positions. It's -- it's forced selling, is how I would describe it...

QUEST: All right...

LAKE: -- in some (INAUDIBLE) by short-term people. But I don't hear panic when I talk to long-term people. I hear them sitting it out and looking for what could be a great buying opportunity.

So that makes me feel like it's not quite at that panic mode.

QUEST: All right. Maggie, many thanks, indeed.

LAKE: Good to see you, Richard.

QUEST: We've got another long day ahead tomorrow.

Maggie Lake joining me here in New York.

It's been an extraordinary 24 hours, 48 hours, 72 hours.

When I come back after this break, A Profitable Moment.

QUEST MEANS BUSINESS.

We're live in New York.

(COMMERCIAL BREAK)

QUEST: It would be -- there's the Dow Jones, down more than 500 points. The NASDAQ Composite off nearly 150 points, 5.96 percent for the U.S. markets. We're getting a taste -- a view of what's happening in New York at the moment.

Tonight's Profitable Moment.

There's been a slightly apocalyptic tinge to the past few hours and it would be easy here just to stand here and say be calm, take it all in your stride.

Well, we know the U.S. has been downgraded, and, yes, there are minor riots on the streets of London.

There has been bond intervention in the markets in Europe and we have a Federal Reserve meeting in the United States tomorrow.

But what to make of it all?

What should investors make of it all?

It's difficult to say with any degree of certainty that we have reached any conclusion or we've reached the bottom.

The fact is, this is all about getting ahead of the curve. In 2008, policymakers failed to get ahead of the curve and the global financial crisis followed in its wake.

They're trying hard this time, but the truth is that the markets are saying they've still got some way to go before they can truly say they're on top of this thing.